Decomposing long-run carbon abatement cost curves

371 Pages·2012·12.34 MB·English

Decomposing long-run carbon abatement
cost curves - robustness and uncertainty

by
Fabian Kesicki
9 January 2012

A thesis submitted in part fulfilment of the
Degree of Doctor of Philosophy

UCL Energy Institute
University College London
I, Fabian Kesicki, confirm that the work presented in this thesis is my own. Where
information has been derived from other sources, I confirm that this has been indicated
in the thesis.

Fabian Kesicki, 9 January 2012

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Publications based on this PhD thesis
Peer-reviewed journals:
 Kesicki, Fabian and Paul Ekins (2011): “Marginal abatement cost curves: a call for caution“,
Climate Policy, in press
 Kesicki, Fabian and Neil Strachan (2011): “Marginal abatement cost (MAC) curves:
confronting theory and practice “, Environmental Science and Policy 14 (8), p. 1195-1204
 Kesicki, Fabian and Gabrial Anandarajah (2011): “The role of energy-service demand
reduction in global climate change mitigation: combining energy modelling and decomposition
analysis “, Energy Policy 39 (11), p. 7224-7233
Conferences:
 Kesicki, Fabian (2011): ”Why are MAC curves robust to different fossil fuel prices? An
application to the UK power sector”, Stanford: Semi-annual ETSAP workshop, July 9th 2011
 Kesicki, Fabian (2011): “Intertemporal Issues and Marginal Abatement Costs in the UK
Transport Sector”, Rome: 18th Annual Conference of the EAERE, June 29th-July 2nd 2011
 Anandarajah, Gabrial and Fabian Kesicki (2010): “Global Climate Change Mitigation: What
is the Role of Demand Reduction,” Vilnius: 11th IAEE European Conference, August 25th -28th
2010
 Kesicki, Fabian (2010): “Marginal Abatement Cost Curves: Combining Energy System
Modelling and Decomposition Analysis,” Stockholm: International Energy Workshop, June 21st-
23rd 2010
 Kesicki, Fabian (2010): “Marginal abatement cost curves for policy making - model-derived
versus expert-based curves,” Rio de Janeiro: 33rd IAEE International Conference, June 6th-9th
2010

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Acknowledgment
I would firstly like to give my sincere thanks to both of my supervisors, Dr Neil
Strachan and Dr Mark Barrett, for their continued support and critical review of my
research. I am very grateful for the help I have received from them over the last three
years and the encouragement they provided to publish my research and present it at
conferences. I would also like to thank Professor Paul Ekins for providing the
opportunity to collaborate with the UK Energy Research Centre Energy Systems theme
and for many thought provoking discussions. Particular thanks are due to my examiners,
Professor Jim Skea and Dr Ilkka Keppo, for their very valuable feedback, which helped
to improve the thesis.
I am grateful to Christophe McGlade, Julia Tomei, Dr Megan McMichael, Will Usher,
Will McDowall and Samuel Stamp for proofreading my thesis and their very helpful
comments. My special thanks go to Julia Tomei and Christophe McGlade who
proofread my conference papers and journal publications and helped to improve them
with their critical opinions and insights. Furthermore, I would like to thank all members
of the UCL Energy Institute for creating a friendly work atmosphere and for making this
a memorable time.
Finally, I would like to extend my thanks to the German Academic Exchange Service
(DAAD) for granting me a scholarship and supporting my research throughout the last
three years.
Abschließend danke ich herzlich meinen Eltern, die mich immer in meinen
Bemühungen unterstützt und bei meinem Vorhaben bekräftigt haben.

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Abstract
Policy makers in the United Kingdom (UK), as in many countries around the world, are
confronted with a situation of legally binding commitments to reduce carbon emissions.
In this context it remains an open question of how to find a cost-efficient approach to
climate change mitigation. Marginal abatement cost (MAC) curves have already been
applied to help understand the economics of many different environmental problems
and can likewise assist with illustrating the economics of climate change mitigation.
Current approaches to generate MAC curves rely mostly on the individual assessment of
each abatement measure, which are then ranked in order of decreasing cost-efficiency.
These existing ways of generating MAC curves fail to allow both the graphical
representation of the technological detail and the incorporation of system-wide behavioural,
technological, and intertemporal interactions. They also fail to provide a framework for
uncertainty analysis. This dissertation addresses these shortcomings by proposing a new
approach to deriving MAC curves through the combination of an integrated energy
system model, UK MARKAL, and index decomposition analysis. The energy system
model is used to capture system-wide interactions, while decomposition analysis
permits the analysis of measures responsible for emissions reduction. Sensitivity
analysis and stochastic modelling are also employed to represent how sensitive the
measures are to variations of the underlying drivers and assumptions, as well as how
they interact. With a focus on the UK and the year 2030, as an important intermediate
emissions reduction target, system-wide MAC curves are presented accompanied by a
detailed analysis of the power, transport, and the residential sectors. This analysis
allows important insights to be made into the economics of emissions mitigation, as
well as investigating the robustness of findings. The results of the dissertation project
represent a suitable orientation base for decision making in long-term climate policy.
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Table of contents
1 INTRODUCTION 14
1.1 Abatement cost curves and climate policy 14
1.2 Use of MAC curves in the United Kingdom and beyond 15
1.3 Main research objectives 17
1.4 Focus of thesis 18
1.5 Overview 20
1.6 References 22
2 LITERATURE REVIEW 25
2.1 International background to climate change mitigation 25
2.2 MAC curve 26
2.3 Common aspects of all types of MAC curves 53
2.4 Influencing factors of MAC curves 54
2.5 Decomposition analysis 57
2.6 Critique and conclusions 60
2.7 References 63
3 ENERGY SYSTEM MODELLING 70
3.1 Energy system analysis 70
3.2 Energy models 72
3.3 Energy system model UK MARKAL 85
3.4 Concepts of abatement cost and abatement potential in energy modelling 102
3.5 References 106
4 INDEX DECOMPOSITION ANALYSIS 111
4.1 Introduction to decomposition analysis 111
4.2 Origin and development of IDA 112
4.3 Methods of IDA 116
4.4 Comparison of methods 134
4.5 Application of IDA in the context of carbon abatement curves 142
4.6 References 150
5 UNCERTAINTY ANALYSIS 155
5.1 Uncertainties related to MAC curves 157
5.2 Methods to address uncertainty in energy modelling 165
5.3 Approach to uncertainty for MAC curves using an energy system model 179
5.4 References 183

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6 ELECTRICITY SECTOR MAC CURVES 187
6.1 Description of the electricity sector in UK MARKAL 189
6.2 Reference scenario 191
6.3 Path dependency 198
6.4 Discount rate 206
6.5 Fossil fuel prices 211
6.6 Technology learning 220
6.7 Biomass availability 225
6.8 Availability of technologies 226
6.9 Demand development 229
6.10 Summary 233
6.11 MAC curves for the year 2020, 2040 and 2050 235
6.12 References 241
7 TRANSPORT SECTOR MAC CURVES 242
7.1 Description of the transport sector in UK MARKAL 243
7.2 Reference scenario 245
7.3 Path dependency 251
7.4 Technology learning 258
7.5 Discount rate 264
7.6 Market potential of battery vehicles 268
7.7 Cost of electricity 271
7.8 Fossil fuel prices 274
7.9 Availability and price of biofuels 277
7.10 Price elasticity of demand 278
7.11 Demand development 281
7.12 Summary 283
7.13 MAC curves for 2020, 2040 and 2050 285
7.14 References 292
8 RESIDENTIAL SECTOR MAC CURVES 293
8.1 Description of the residential sector in UK MARKAL 294
8.2 Reference scenario 296
8.3 Path dependency 304
8.4 Discount rate 309
8.5 Fossil fuel prices 313
8.6 Cost of electricity 318
8.7 Market potential of electric heat pumps 320
8.8 Demand elasticity 321
8.9 Demand development 323
8.10 Summary 326
8.11 MAC curves for 2020, 2040 and 2050 329
8.12 References 335
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9 SYSTEM-WIDE MAC CURVES AND STOCHASTICITY 336
9.1 System-wide MAC curves 336
9.2 Stochasticity 349
9.3 References 358
10 CONCLUSIONS 359
10.1 Main findings 359
10.2 Limitations of the study 366
10.3 Future Research 370

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List of figures
Figure 1.1: Sample MAC curve .................................................................................................................................... 14
Figure 1.2: Anthropogenic greenhouse gas emissions (weighted according to global warming potential) in the UK in
2009 .............................................................................................................................................................................. 19
Figure 2.1: Different MAC curve representation: emissions (left) and emissions reduction (right) ............................. 28
Figure 2.2: Early expert-based abatement curve for the United Kingdom in 2005 ....................................................... 29
Figure 2.3: McKinsey global expert-based abatement curve in 2030 ........................................................................... 31
Figure 2.4: IEA global marginal abatement curve in 2050 ........................................................................................... 32
Figure 2.5: Stabilisation wedges between a baseline and reduction scenario ............................................................... 33
Figure 2.7: MAC curve for Germany in 2010............................................................................................................... 40
Figure 2.8: Bottom-up marginal abatement cost of CO in 2020 by country ................................................................ 43
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Figure 2.9: Comparison of PRIMES and GENESIS MAC curve for the EU in 2010 .................................................. 46
Figure 2.10: Comparison of MAC curve for China in 2010 ......................................................................................... 47
Figure 2.11: CO reduction compared to baseline development against a carbon tax .................................................. 48
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Figure 3.1: A simplified reference energy system from the UK MARKAL model ...................................................... 81
Figure 3.2: Structure of the UK MARKAL model ....................................................................................................... 87
Figure 3.3: Temporal disaggregation in the UK MARKAL model .............................................................................. 90
Figure 3.4: MARKAL model generator ........................................................................................................................ 93
Figure 3.5: Consumer and producer surplus ................................................................................................................. 97
Figure 4.1: Graphical illustration of the index number problem ................................................................................. 117
Figure 4.2: Representation of the Index Problem in the 2n-dimensional Quantity-Price Space ................................. 121
Figure 4.3: Decomposition results with different methods ......................................................................................... 133
Figure 6.1: Carbon tax pathway in the different model runs ....................................................................................... 189
Figure 6.2: Emission curve for the electricity sector in United Kingdom in 2030 ...................................................... 192
Figure 6.3: Electricity generation mix for different marginal abatement costs in 2030 (REF scenario) ..................... 192
Figure 6.4: MAC curve for the REF scenario in 2030 ................................................................................................ 194
Figure 6.5: Technology-specific contribution to overall emissions reduction 192 Mt CO (REF scenario) in 2030 .. 197
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Figure 6.6: Total abatement costs (left) and average abatement costs (right) for the electricity sector in United
Kingdom in 2030 ........................................................................................................................................................ 198
Figure 6.7: CO tax trajectory for different path dependency scenarios for an exemplary model run with a CO tax of
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£113/ t CO in 2030 .................................................................................................................................................... 199
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Figure 6.8: End-use emission curve for different path dependency scenarios ............................................................ 200
Figure 6.9: Market share for different technologies in the CONST-AFTER scenario in 2030 ................................... 201
Figure 6.10: MAC curve for the ZERO-AFTER scenario in 2030 ............................................................................. 202
Figure 6.11: Electricity generation mix for different marginal abatement costs in 2030 (ZERO-AFTER scenario) .. 203
Figure 6.12: Market share for different technologies in the ZERO-BEFORE scenario in 2030 ................................. 205
Figure 6.13: Emission curve along rising CO abatement costs for different discount rate scenarios in 2030 ........... 207
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Figure 6.14: Increase in levelised electricity generation costs from the REF (5% discount rate) to the PDR 10 scenario
(10% discount rate) in UK MARKAL in 2030 ........................................................................................................... 208
Figure 6.15: MAC curve for the PDR10 scenario in 2030 .......................................................................................... 209
Figure 6.16: MAC curve for the SDR scenario in 2030 .............................................................................................. 210
Figure 6.17: Market share for different technologies in the discount rate scenarios in 2030 ...................................... 211
Figure 6.18: Emission curve along rising CO abatement costs for fossil fuel price scenarios in 2030 ...................... 213
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Figure 6.19: Electricity generation mix for different marginal abatement costs in 2030 (GAS scenario) .................. 214
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Figure 6.20: MAC curve in the GAS scenario in 2030 ............................................................................................... 216
Figure 6.21: MAC curve in the FF+ scenario in 2030 ................................................................................................ 217
Figure 6.22: MAC curve in the FF++ scenario in 2030 .............................................................................................. 219
Figure 6.23: Emission curve along rising CO abatement costs for the IEP and FIRST-OF-KIND scenario in 2030 222
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Figure 6.24: MAC curve for the IEP scenario in 2030 ............................................................................................... 223
Figure 6.25: MAC curve for the FIRST-OF-KIND scenario in 2030 ......................................................................... 224
Figure 6.26: Market share for different technologies in the IEP and FIRST-OF-KIND scenario in 2030 .................. 225
Figure 6.27: Emission curve along rising CO abatement costs for the BIOMASS scenario in 2030 ........................ 226
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Figure 6.27: Emission curve along rising CO abatement costs for the NO-NUC-CCS scenario in 2030 .................. 227
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Figure 6.28: MAC curve for the NO-NUC-CCS scenario in 2030 ............................................................................. 228
Figure 6.29: Electricity generation mix for different marginal abatement costs in 2030 (NO-NUC-CCS scenario) .. 229
Figure 6.30: Emission curve along rising CO abatement costs for different demand scenarios in 2030 ................... 230
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Figure 6.31: MAC curve for the DEM+ scenario in 2030 .......................................................................................... 231
Figure 6.32: MAC curve for the DEM- scenario in 2030 ........................................................................................... 231
Figure 6.33: Market share for different technologies in the demand scenarios in 2030 .............................................. 233
Figure 6.34: Emission curve along rising CO abatement costs for the REF scenarios in different years .................. 236
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Figure 6.35: MAC curve for REF scenario in 2020 .................................................................................................... 237
Figure 6.36: MAC curve for REF scenario in 2040 .................................................................................................... 238
Figure 6.37: MAC curve for REF scenario in 2050 .................................................................................................... 239
Figure 6.38: Cumulative emission curve along rising CO abatement costs for the REF scenario ............................. 240
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Figure 7.1: End-use emission curve for the transport sector in United Kingdom in 2030 .......................................... 245
Figure 7.2: CO emissions from different transport modes in United Kingdom in 2030 ............................................ 246
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Figure 7.3: Transport MAC curve for the REF scenario in 2030 ................................................................................ 248
Figure 7.4: Total decomposition of transport MAC (REF) for the UK in 2030 .......................................................... 249
Figure 7.5: Total abatement cost for the transport sector in United Kingdom in 2030 ............................................... 251
Figure 7.6: End-use emission curve for different path dependency scenarios ............................................................ 252
Figure 7.7: Market share for different technologies in the CONST-AFTER scenario in 2030 ................................... 253
Figure 7.8: MAC curve for the ZERO-AFTER scenario in 2030 ............................................................................... 254
Figure 7.9: Market share for different technologies in the ZERO-AFTER scenario in 2030 ...................................... 255
Figure 7.10: MAC curve for the ZERO-BEFORE scenario in 2030........................................................................... 256
Figure 7.11: Market share for different technologies and carbon intensity of electricity (bottom right) in the ZERO-
BEFORE scenario in 2030 .......................................................................................................................................... 257
Figure 7.12: Emission curve along rising CO abatement costs for different technology learning scenarios in 2030 260
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Figure 7.13: MAC curve for the DTL scenario in 2030 .............................................................................................. 261
Figure 7.14: MAC curve for the ITL scenario in 2030 ............................................................................................... 261
Figure 7.15: Market share for different technologies in the DTL and ITL scenarios in 2030 ..................................... 262
Figure 7.16: Total decomposition of transport MAC (ITL & DTL scenario) for the UK in 2030 .............................. 263
Figure 7.17: Total cost in 2030 to achieve an emission target of 70 Mt CO .............................................................. 264
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Figure 7.18: Emission curve along rising CO abatement costs for different discount rate scenarios in 2030 ........... 265
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Figure 7.19: MAC curve for the PDR10 scenario in 2030 .......................................................................................... 265
Figure 7.20: MAC curve for the SDR scenario in 2030 .............................................................................................. 266
Figure 7.21: Total decomposition of transport MAC (PDR10 & SDR scenario) for the UK in 2030......................... 267
Figure 7.22: Emission curve along rising CO abatement costs for the BATTERY scenarios in 2030 ...................... 268
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Figure 7.23: MAC curve for the BATTERY scenario in 2030 ................................................................................... 269
Figure 7.24: Market share for different technologies in the BATTERY scenario in 2030.......................................... 270
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